DO YOU KNOW THE MULTIPLES FIGURE FOR YOUR INDUSTRY?

 

Valuing a business is tricky…it’s subjective.

A seller attempts to establish a value for their business by considering such matters as the amount of time and effort.

When this method of attaching value is used, they are routinely disappointed.

It is not relevant.

I discussed in a previous blog titled ‘Do you know what your business is worth?’the 3 valuations myths [ Labour, Revenue and My Price]  and how to establish the ‘magic’ number – Earnings Before Interest Tax Depreciation and Amortisation [EBITDA].

In this blog I will explain the significance of initiating an accurate valuation at the outset and the importance of establishing what the multiple is in your industry if you want to maximize your exit.

There are 6 reasons to quantify value at the outset:

  1. You can identify assets that will be included or excluded as part of the sale.
  2. You can identify and deal with financial risks as they arise.
  3. You will be able to determine the best way to ‘groom’ the business.
  4. You will have insight into the range of factors that potential buyers will use in coming up with their own valuations.
  5. Your expectations in terms of the appropriate selling price for your business will remain grounded in reality.
  6. You will be able to establish your goals in the context of ultimate selling price and maximizing your exit.

Once you have made the decision to sell, the best strategy is to get an appraisal from a valuation specialist.

When I sold my interest in the 9 facility elder care business I owned and ran to my Investors, I went this route.

I hired Deloitte Touche, one of the world’s top auditing and management consulting firms, to value the business. They valued it using a significantly higher multiple [ more on multiples shortly] than the industry average.

A buyer is far more likely to accept the valuation from a professional valuer than your valuation.

There are many different ways to value a business and I want to focus on an important one – market value / sector specific.

Often, this is where the buyer or valuer starts.

The value is largely determined by the industry in which you operate.

Do you know the ‘rules of thumb’ for your industry?

Let’s look at some examples.

When the online-only news site Business Insider was acquired last year by German media giant Axel Springer, there was much debate about the price that was paid.

A typical multiple in this industry is between 5 and 6 times revenues.

When the acquisition was announced, Axel Springer said it paid $343 million for the outstanding shares Of Business Insider [ it already owned 9%] so the company was valued at about $450 million.

Axel reported that if it had owned Business Insider for all of 2015, the site would have contributed $42 million in sales.

So they paid a multiple of 10….double the industry norm!

At the other extreme in terms of size of transaction, I sold an elder care facility for $1.5 million.

The industry norm was a multiple of between 4 and 5 times the EBITDA.

The business was making $150k so the ‘normal valuation’ was $675k but I sold it on a multiple of 10….250% more than anyone in the industry thought it could be sold!

I understand if you want to buy a launderette [UK readers] or laundromats [US readers], it’s a multiple of between 2 and 3 times profits.

Apparently, physicians’ offices are valued at between 1 and 1.25 times annual revenue.

If you want to maximize your exit, you need to know the ‘rules of thumb’ for your industry.

Remember though, they are a guide and a useful starting point.

To discover all my secrets get my information now and take advantage of the generous 75% discount at http://www.maximizeyourexit.com/sell-smart-net-what-youre-worth

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